A company had a return on common stockholders' equity of 22%.Net income equaled $600,000 and average common stockholders' equity equaled $2,500,000.Compute the amount of the preferred dividends declared.
A)$50,000
B)$550,000
C)$132,000
D)$10,763,636
E)$10,000

Question

Quizplus · Accepted Answer

The correct answer is A because the return on common stockholders' equity is calculated by dividing net income by average common stockholders' equity. In this case, the return on common stockholders' equity is 22%, which means that net income is 22% of average common stockholders' equity. Therefore, net income is $600,000 and average common stockholders' equity is $2,500,000, then preferred dividends declared is $50,000.

A Company Had a Return on Common Stockholders' Equity of 22%.Net